Income Taxes

12 Months Ended

Jan. 02, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Provision (Benefit) for Income Taxes

Income (loss) from continuing operations, before income taxes consisted of the following:

	For the Year Ended
(in millions of U.S. dollars)	January 2, 2021		December 28, 2019		December 29, 2018
Canada	$	(88.4)	$	(57.0)	$	(26.1)
Outside Canada	(64.1)		50.7		33.2
(Loss) income from continuing operations, before income taxes	$	(152.5)	$	(6.3)	$	7.1

Income tax expense (benefit) consisted of the following:

	For the Year Ended
(in millions of U.S. dollars)	January 2, 2021		December 28, 2019		December 29, 2018
Current
Canada	$	—	(0.2)		$	—
Outside Canada	1.9		12.2		3.8
	$	1.9	$	12.0	$	3.8
Deferred
Canada	$	—	$	(1.0)	$	(5.6)
Outside Canada	2.4		(6.5)		(6.5)
	$	2.4	$	(7.5)	$	(12.1)
Income tax expense (benefit)	$	4.3	$	4.5	$	(8.3)

The following table reconciles income taxes calculated at the basic Canadian corporate rates with the income tax provision:

	For the Year Ended
(in millions of U.S. dollars)	January 2, 2021		December 28, 2019		December 29, 2018
Income tax (benefit) expense based on Canadian statutory rates	$	(40.4)	$	(1.7)	$	1.9
Foreign tax rate differential	(4.3)		(10.0)		(1.5)
Local taxes	2.1		1.1		(0.6)
Nontaxable interest income	(8.7)		(8.4)		(9.8)
Impairment expense	17.6		—		—
Impact of intercompany transactions and dividends	10.8		12.2		1.0
Income tax credits	(0.5)		(0.7)		—
Change in enacted tax rates	(1.7)		(0.1)		3.4
Change in valuation allowance	28.5		19.7		(4.2)
Change in uncertain tax positions	(1.5)		0.1		(1.8)
Equity compensation	1.9		1.3		1.2
Permanent differences	1.6		1.3		0.8
Adjustments to deferred taxes	(1.1)		(10.4)		0.7
Other items	—		0.1		0.6
Income tax expense (benefit)	$	4.3	$	4.5	$	(8.3)

Deferred Tax Assets and Liabilities

Deferred income tax assets and liabilities were recognized on temporary differences between the financial and tax bases of existing assets and liabilities as follows:

(in millions of U.S. dollars)	January 2, 2021		December 28, 2019
Deferred tax assets
Net operating loss carryforwards	$	196.4	$	133.6
Capital loss carryforwards	14.5		12.0
Liabilities and reserves	32.0		25.7
Stock options	10.7		8.0
Inventories	2.4		3.4
Interest expense	9.8		11.3
Right of use lease obligations	50.7		44.6
	316.5		238.6
Deferred tax liabilities
Property, plant and equipment	(65.0)		(63.7)
Intangible assets	(191.8)		(101.0)
Right of use assets	(50.1)		(43.2)
Other	(0.7)		(1.0)
	(307.6)		(208.9)
Valuation allowance	(156.5)		(120.3)
Net deferred tax liability	$	(147.6)	$	(90.6)

As of January 2, 2021, we have outside tax basis differences, including undistributed earnings, in our foreign subsidiaries. For 2020, deferred taxes have not been recorded on the undistributed earnings because our foreign subsidiaries have the ability to repatriate funds to their respective parent company tax-efficiently or the undistributed earnings are indefinitely reinvested under the accounting guidance. In order to arrive at this conclusion, we considered factors including, but not limited to, past experience, domestic cash requirements, cash requirements to satisfy the ongoing operations, capital expenditures and other financial obligations of our subsidiaries. It is not practicable to determine the excess book basis over outside tax basis in the shares or the amount of incremental taxes that might arise if these earnings were to be remitted. The amount of tax payable could be significantly impacted by the jurisdiction in which a distribution was made, the amount of the distribution, foreign withholding taxes under applicable tax laws when distributed, relevant tax treaties and foreign tax credits. We repatriated earnings of $221.8 million and $75.1 million to Canada in 2020 and 2019, respectively, incurring no tax expense.

As of January 2, 2021, we have operating loss carryforwards totaling $786.6 million, capital loss carryforwards totaling $54.8 million, and tax credit carryforwards totaling $2.6 million. The operating loss carryforward amount was attributable to Canadian operating loss carryforwards of $273.1 million that will expire from 2027 to 2040; U.S. federal and state operating loss carryforwards of $231.1 million and $19.1 million, respectively, that will expire from 2021 to 2040; U.S. federal operating loss carryforwards of $37.6 million that have indefinite lives; Dutch operating loss carryforwards of $128.3 million that will expire from 2021 to 2027; and various other operating loss carryforwards of $97.4 million that will expire from 2021 to 2040.

The capital loss carryforward is primarily attributable to Canadian capital losses of $49.2 million and Israeli capital losses of $5.5 million, all with indefinite lives. The tax credit carryforward of $2.6 million will expire from 2021 to 2023.

In general, under Section 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a U.S. corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (“NOLs”) or tax credits to offset future taxable income. Therefore, current or future changes in our Canadian stock ownership, many of which are outside of our control, could result in a U.S. ownership change under Section 382 and 383 of the Code. If we undergo a U.S. ownership change, our ability to utilize U.S. federal or state NOLs or tax credits could be limited. We monitor changes in our ownership on an ongoing basis and do not believe we had a change of control limitation as of January 2, 2021.

We establish a valuation allowance to reduce deferred tax assets if, based on the weight of the available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to recent cumulative losses, it was determined that it is more likely than not we will not realize the benefit of net operating loss carryforwards and other net deferred assets in Canada, and certain jurisdictions within the Eden business. The balance of the valuation allowance was $156.5 million and $120.3 million for the years ended January 2, 2021 and December 28, 2019, respectively. The valuation allowance increase in 2020 was primarily related to losses generated in tax jurisdictions with existing valuation allowances.

Additionally, we have determined that it is more likely than not that the benefit from our capital losses in Canada and Israel will not be realized in the future due to the uncertainty regarding potential future capital gains in the jurisdiction. In recognition of this risk, we have provided a valuation allowance of $14.5 million on our capital losses.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows:

	For the Year Ended
(in millions of U.S. dollars)	January 2, 2021		December 28, 2019		December 29, 2018
Unrecognized tax benefits at beginning of year	$	16.9	$	15.1	$	15.8
Additions based on tax positions taken during a prior period	—		5.0		1.3
Reductions based on tax positions taken during a prior period	—		(1.9)		(0.1)
Settlement on tax positions taken during a prior period	(1.7)		—		—
Tax rate change	—		—		(0.1)
Lapse in statute of limitations	(1.0)		(2.9)		(4.3)
Additions based on tax positions taken during the current period	1.3		1.7		3.0
Cash payments	(0.2)		(0.2)		—
Foreign exchange	0.3		0.1		(0.5)
Unrecognized tax benefits at end of year	$	15.6	$	16.9	$	15.1

As of January 2, 2021, we had $15.6 million of unrecognized tax benefits, a net decrease of $1.3 million from $16.9 million as of December 28, 2019. If we recognized our tax positions, approximately $14.4 million would favorably impact the effective tax rate. We believe it is reasonably possible that our unrecognized tax benefits will decrease or be recognized in the next twelve months by up to $3.0 million due to the settlement of certain tax positions and lapses in statutes of limitation in various tax jurisdictions.

We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. No interest or penalties were recovered during the years ended January 2, 2021, December 28, 2019 and December 29, 2018. The amount of interest and penalties recognized on the Consolidated Balance Sheets for 2020 and 2019 were a liability of $0.8 million and $0.9 million, respectively.

Years through 2009 have been audited by the U.S. Internal Revenue Service, though the statutes are still open back to 2008 due to certain net operating loss carryforwards. Years prior to 2014 are closed to audit by U.S. state jurisdictions. We are currently under audit in Canada by the Canada Revenue Agency (“CRA”) for tax years 2014 and 2016. Years prior to 2014 are closed to audit by the CRA. We are currently under audit in Israel for the 2013 to 2017 tax years.